If your organization has workers in Virginia who use a personal vehicle for their jobs, you need to be familiar with applicable laws. While Virginia does not legally require employers to reimburse business expenses, it is a great idea to do so.
Mileage reimbursement in Virginia
The most common way to reimburse employees for vehicle travel is a mileage reimbursement. No Virginia law requires reimbursement of business expenses. Federal law, however, does require reimbursement for business expenses if they would reduce the employee's wages below the minimum wage of $7.25/hour.
To stay competitive, many businesses decide to reimburse Virginia employees for mileage. This makes working for that business a more attractive option. The question is, what rate is the best reimbursement rate for Virginia employees?
What is the best rate for Virginia mileage reimbursement?
Many employers use the federal mileage reimbursement rate calculated by the IRS. The 2024 IRS mileage rate is set at 67 cents per mile. This is a competitive rate to use in the state of Virginia, with its proximity to Washington, D.C. and relatively expensive regions in the Mid-Atlantic.
There are other options to reimburse Virginia employees for mileage. One is a car allowance, which does not directly reimburse mileage but is designed to cover vehicle costs. Another option is a FAVR reimbursement plan.
A traditional car allowance is taxed as compensation. Mileage reimbursement at the IRS rate or lower is tax-free. FAVR plans are also tax-free and hold a few key advantages, which will be explored below.
Comparing VA travel reimbursement options
The biggest downside of using a car allowance for travel reimbursement is the taxes that come with it. This means that you have to calculate the allowance with the after-tax number in mind for your employees. It is the simplest option, however, since you just set a number and pay it each paycheck.
Paying a mileage reimbursement is fairly simple and avoids taxation. But it does require an IRS-approved mileage log to demonstrate business use. The downside of a mileage reimbursement is that one rate may not work for all employees. The federal mileage rate is known to over-reimburse some employees and under-reimburse others.
A FAVR plan issues tax-free payments and also requires an IRS-approved mileage log. FAVR is designed using localized rates and avoids over-reimbursement and under-reimbursement. The downside is that it is more complex to administer.
Reimbursing Virginia employees for mileage
To reimburse a Virginia employee for mileage, employers should establish a clear reimbursement policy that outlines the process, rates, and any necessary documentation. Whether you use the federal mileage reimbursement or a FAVR reimbursement, employees should keep detailed records of their mileage.
The IRS requires a business mileage log to include the date, purpose of the trip, starting and ending locations, and total miles driven. This documentation is essential for both the employee and employer to keep the payments tax-free and to ensure compliance with best practices for Virginia travel reimbursement.
Many businesses now use mobile apps that track mileage instead of paper logs or spreadsheets. These mileage tracking apps are accurate, automate the process, and ensure timely mileage reports. They also provide visibility for managers into each worker's productivity.
Costs covered by Virginia travel reimbursement
A mileage reimbursement should cover a number of different costs. Some of these are fixed costs, like insurance, depreciation, license, registration, and property taxes. Others are variable costs that increase the more you drive, including gas, maintenance, oil, tires, and more.
Other reimbursable expenses for vehicle travel can include tolls, parking fees, and the Virginia highway use fee, as long as the employee can demonstrate business use of the expense. The Virginia highway use fee is applied to certain fuel-efficient vehicles and electric vehicles. This fee can be paid either in a lump sum or on a per mile basis under the Virginia Mileage Choice Program.
Choosing the best VA vehicle reimbursement
Because there is no Virginia mileage reimbursement law, employers have freedom to choose how to offset employee vehicle expenses. The most competitive employers will choose an option that benefits employees while remaining cost-effective.
The best way to reimburse all the covered expenses is a FAVR plan, which separates out fixed expenses from variable expenses. This ensures a higher degree of accuracy than a standardized mileage rate. This approach controls costs and provides transparency in generating payments to employees.
To learn more about how a FAVR plan could benefit your Virginia employees, contact mBurse today.
